STOCKS NEWS SINGAPORE-Maybank upgrades Suntec REIT to 'buy'

Sunday, 7 Oct 2012 | 11:21 PM ET

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Maybank Kim Eng upgraded Suntec Real Estate Investment Trust

to 'buy' from 'hold' and raised its target price to S$1.66 from S$1.42, citing strong occupancy at its office assets and good progress in the upgrading works for its shopping mall and convention centre.

Units of Suntec REIT were up 0.3 percent at S$1.535, and have surged 42.9 percent since the start of the year, compared to the FTSE ST Real Estate Investment Trust's 32 percent rise.

Suntec is one of the few Singapore-listed REITs that offers yields of more than 6 percent but are trading at discounts to book value, Maybank said.

It also noted that against a backdrop of an office supply glut and high vacancy rates, Suntec has secured 100 percent occupancy for its office assets in Suntec and Park Mall, One Raffles Quay and 99.5 percent for Marina Bay Financial Centre Tower 1.

"With all its assets and income contribution from Singapore, we believe investors will continue to favour Suntec in the absence of forex risk, highly-liquid S-REIT counters and investable alternatives," said Maybank in a note.

The brokerage is confident that Suntec REIT will be able to pay out distribution per unit of at least 2.15 Singapore cents for the third quarter and at least 9 percent Singapore cents for the full year.

DMG & Partners said United Overseas Bank Ltd and Oversea-Chinese Banking Corp Ltd may benefit from new rules to cool Singapore's property market by capping residential loan tenures at 35 years.

Although the new rules will mean slower mortgage growth and limit the ability of some property owners to refinance, banks that recorded stronger housing loan growth in the last 2 years are in a better position to keep their customers without having to be aggressive on interest rates.

Therefore, OCBC and UOB are expected to benefit as both posted a 2-year housing loan growth of about 19 percent a year on average, more than double of DBS Group Holdings' 8 percent.

By 0207 GMT, shares of DBS were down 1.2 percent at S$14.28, while UOB dropped 1.1 percent at S$19.63 and OCBC fell 0.7 percent to S$9.42.

UOB, with the highest percentage exposure to housing loans, is expected to gain the most, DMG said, maintaining its 'buy' rating on the bank with a target price of S$21.40.

Singapore's latest measures to cool its property market by capping the tenure of new home loans at 35 years, may result in lower transaction volumes for a few months before picking up again, Nomura said.

At 0117 GMT, shares in CapitaLand Ltd , Southeast Asia's largest property developer, were down 2.7 percent at S$3.21, while smaller rival City Developments Ltd fell 1.3 percent to S$11.79.

Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years and more than 45 percent of new residential property loans granted by financial institutions have tenures exceeding 30 years, the Monetary Authority of Singapore.

Nomura also noted that unless home buyers have ample capital, mortgage repayment could now be 24-45 percent higher. The brokerage's top pick among Singapore residential developers is Keppel Land Ltd , as it trades at a discount of 41 percent to its net asset value.

"In reality, however, we suspect the market will still find its way around the new rules," said Nomura, adding that negative impact on stock prices of developers is likely to be limited.

CIMB Research said the Singapore government's move was pre-emptive in nature and unlikely to hurt demand much, given low mortgage rates and demand for smaller units.

"While the impact on demand may be mild, the government's pledge to keep prices down signals further policy headwinds for developers," said CIMB, which kept its 'neutral' rating on the sector. Its top picks include CapitaLand and CapitaCommercial Trust , for which it has 'outperform' ratings.